Chapter 6, Problem 6E

(Purchases vs. Consumption Method) The city of Bettinger’s Bend General Fund had a beginning inventory of materials and supplies of $86,000.

1. 1. Materials and supplies costing $740,000 were ordered during the year.
2. 2. The materials and supplies ordered were received; actual cost, $741,000.
3. 3. According to the physical inventory, $90,000 of materials and supplies were on hand at year end.

Required

1. a. Prepare general journal entries to record the foregoing information using the purchases method of accounting for inventories.
2. b. Prepare general journal entries to record the foregoing information using the consumption method and assuming a perpetual inventory system is used.
3. c. What amounts will be reported in the General Fund balance sheet related to inventory for GAAP reporting purposes under the purchases method? Under the consumption method?